Does anyone have experience in finding a guarantor for an SBA Loan?

June 04, 2020

by a searcher from University of Southern California - Marshall School of Business in Roseville, CA, USA

I’m hoping to make my first acquisition before the end of the year in the healthcare space. I spoke to someone recently who helps entrepreneurs get SBA loans—he said I need to find someone with 1 year experience in my particular niche to guarantee the loan in order to make the deal happen. However, I don’t know anybody personally in this space, and although I’m reaching out to industry experts to become advisors for my company, I’m struggling to imagine a situation in which someone I don’t have a pre-established relationship with would be willing to sign the personal guarantee—has any navigated this process before?

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Reply by a searcher
from Massachusetts Institute of Technology in Corpus Christi, TX, USA

I agree with Michael. You will find a wide range of views on this across different lenders, but some will consider a combination of new management, advisors, investors, and the remaining management team to satisfy the experience requirement. Part of your due diligence should be carefully evaluating whether you personally can be successfully leading the company, given your background. Once you've convinced yourself that you can do it, prepare a well-reasoned argument as to why and be prepared to pitch it to lenders. They won't all agree, but you just need one to back you, and you have to be prepared to guarantee the loan personally. Riskier, but more rewarding than giving a controlling stake to a third party just to tick a box.

Reply by a searcher
from The University of Auckland in Los Angeles, CA, USA

I've heard the same thing from several lenders - 'SBA require direct industry experience especially post-covid'. Not sure this helps but if a current employee (manager, non-owner) in target company joins you on the loan that will solve your problem.

They would need to guarantee and be compensated accordingly (as would an external guarantor, but current employees know the company better and usually have less to lose (fewer assets, lower income) than an external investor/guarantor so you'll get a better deal).

Apparently having existing management on your loan is a major advantage in obtaining loan approval. Employee will need a 1-year employment contract and must have been with the company a few years..

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